Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to TFI International First Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions for entering the queue will be provided at that time. Before turning the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature, and they are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Lastly, I would like to remind everyone that this conference call is being recorded on Wednesday, April 24, 2019. I will now turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you, and good morning, and thank you, operator. And thank you, everyone, for joining the call. Yesterday, we completed our annual meeting and released our first quarter results after the close of trading. If you need a copy of the release, please visit the investors section of our website. This year after a strong start with TFI. And our first quarter results reflects our unwavering commitment to execution of the basic fundamentals of our business, so that we can drive strong and consistent free cash flow regardless of the economic cycle. We know that you the investors appreciate the tangible nature of free cash flow, and we value the flexibility it provides in optimizing our approach to the business. During the first quarter, we see through to our goal of creating and unlocking shareholder value and whenever possible, returning excess capital to our shareholder. Throughout the quarter, our teams saw operating efficiencies. We pursued a massive laid business model, we maintained our strong balance sheet and we saw accretive business acquisition in a highly discipline manner, completing three during the quarter. This will remain our approach throughout the year with the aim of generating not just growth, but profitable growth all in the interest of creating shareholder value. With that, let's have a look at our first quarter results. I should inform everyone that we've adopted the new accounting standard under IFRS 16, and as a result certain numbers I'm going to discuss are not directly comparable with past results. Our total revenue grew 3% year-over-year to $1.2 billion, and that's our highest revenue ever for the first quarter. As you know, we're focused on profitability, not just top line growth. So more important to us is that our operating income was up 41% to $106 million. Similarly,…

Thank you. [Operator Instructions] And your first question here comes from Jason Seidl from Cowen and Company. Please go ahead. Your line is open.

Hey, Alain, thank you for taking the question. This is Adam on for Jason here. Just as first, I want to ask you about recent TL pricing trends for your U.S.-based truckload. What are recent contract renewals look like? What kind of trends are you seeing there in terms of contract renewals for TL?

It's a very good question, Adam. I mean, what we're seeing so far is that we're still able to pass on adjusting our price up 3% to 5%, to 6%. For sure, the market is a little bit different versus 2018. Okay? But us we come from a long way. If you remember, when we bought CFI, we were really, really far from where we should have been on quality of revenue. What we're seeing now, okay, it's a little bit of fog. Right now -- because of whether, seasonal is a still not really strong. In Canada, it's not really strong at all. I mean we haven't seen it because of whether. In the U.S., in the north, still not available, and in the South, we're just starting. So this is why -- there's a little bit of pressure in volume. But so far everything, every contract that we are renewing is still an opportunity to improve the quality of revenue.

Got it. Thank you for that. And maybe a quick follow-up here. I wanted to also ask about Specialty TL. I know it's a focus for you guys. What is the M&A market look like for Specialty TL? And I know with a peer of yours -- a Texas-based peer of yours, kind of for moving themselves from the M&A market at the time at the moment, are you able to take advantage of that and make more acquisitions? And just in general, what is the Specialty TL M&A market look like for you guys?

Well, for sure, Adam, that's an area of growth for us. We did two early in the year. Now it's time for us to really digest the acquisition that we've done. They're not big. I mean, we're adding about $20 million of USD EBITDA with those two acquisitions. So it's really a base for us to keep on growing. So, probably, you won't see us really active on the M&A side in the U.S. Specialty TL, at least for the next six months. But for sure, we have lots of opportunity, a lots of opportunity. And, for sure, on the M&A, we could do way more, okay? But it's just that you got to do it in a disciplined manner. It's easy to buy. Everybody with money can buy. But what do you do when you buy the company, that's the important thing. And this is why our focus at TFI has always been to buy at the right place and also to execute, okay, all the synergies after you by the company, right?

Got it. Thank you for the time. Appreciate it.

Okay, Adam. Take care. Bye.

And your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead. Your line is open.

Thanks very much. Good morning.

Good morning, Cameron.

Just maybe a couple of questions on guidance. You mentioned the updated CapEx number for the full year. I'm wondering if you can maybe just talk about if there's any changes to your EPS expectations for the full year? You made a couple of deals, I guess, subsequent to that and the previous number we had was $3.80 to $3.90. Is there any change to that number?

Well, you know what, Cameron, we've always been very conservative and under promise and over deliver it. So we're still sticking to our $3.80 to $3.90 in terms of EPS for 2019 so far. Let's see what happens in Q2, and then probably, we may update that. And for sure, the possibility of us going on the $4 is reasonable. But for the time being, it's up today. I mean, we're still staying at about the $3.80 to $3.90.

Okay. Fair enough. And on -- I don't know if you have any comments around free cash flow, it was quite strong in Q1, I mean, always have a good strong free cash flow from TFI, but any expectations for the full year?

Well, we said it. I mean, on that regard, we've lowered a little bit our CapEx for the year 2019. And this relates really to the fact that not really understanding pretty well, okay, the impact of IFRS 16. So late, well, I mean, like the summer of 2018, we made the decision to really replace all the lease trucks that we have, mostly in Canada or in our specialty TL or TL with a truck that we're buying. So after really looking at the IFRS thing there, right now, I mean, there's no incentive for us, okay? It's only a tax incentive. So this is why we'll do it slowly. So this is why we brought back our CapEx at the level of $200 million to $220 million. That being said, okay, if you look at our free cash flow, for sure, we should be flying in that $400 million, $450 million neighborhood for 2019. Now, Q1 was exceptionally strong, okay, because we did a much better job in terms of collecting our ARs and controlling the way we pay our payable and all that. So the guys did -- our DSO went down a day, okay? So a day is -- just a day for TFI is $50 million, right? Because our guys are more focused even more, okay, on collecting. Our CFI guys in the U.S. have done a fantastic job of bringing down, okay, their DSO. We are completely 100% in control over there. We still have a lot of work to do with our TCE, in our TFM in U.S. So $400 million $450 million I think is reasonable target for us for 2019.

Okay. No, that's great. And maybe just final for me, just wonder, if you can maybe comment little bit about the recent BeavEx acquisition, or I guess, it hasn’t quite closed yet. But, I mean, that this looks very interesting. I know it's not huge, but it looks like it'd be a really nice fit with your existing Last Mile operation in the U.S. So maybe you can comment a bit more about what that brings to you? And particularly what kind of profitability, because it does look like coming out of Chapter 11, this probably going to be immediately fairly profitable business?

Well, absolutely, Cameron, this is a fantastic deal, for many reasons. Number one is that, BeavEx, because they are under the protection of the court, these guys were not making any money. So it was a nuisance for us in the market. And this is why, if you look at the profitability of our U.S. operations versus our Canadian operation, I mean U.S. is lagging Canada. And one of the reason is, because of those guys like BeavEx, a problem. So that problem disappears, so that's number one. Number two is that, we're adding about $100 million of business into our network and we're adding only about seven location. So think about the improvement of density in all of the -- of our Last Mile network in the U.S. This is going to be fantastic. And if you exclude the old rep, which you need the old rep to do the work, okay, so you're left with about 25% gross margin with today's rate, which is about 5 points under what we do us in the U.S. So there's potential of improving rates there. But more importantly is that overhead that we're adding is very, very limited, okay? Seven terminals with rent, okay, a little bit of executives, management and all that. So it is going to turn out to be a fantastic transaction, like when I brought my truck in 2004 or like when we bought CF in 2005. This is going to be highly accretive to our U.S. Last Mile operation. No doubt about that.

Okay. And I mean, obviously, there's maybe a bit of a unique situation. But are there any other -- I guess, other Last Mile type operators in the U.S. that may be also be struggling that might be of interest to you?

Well, yes, there's a few, okay. But, we -- Cameron, one of the -- on the M&A side, Cameron, you got to be a very patient guy. We were patient with BeavEx. The only things I'm not patient is the bottom line improvement. So there you can be patient. But on the M&A, you got to be patient. So you got to pick up the fruit when it's available and reasonable in terms of price. So, yes, there's a few more, okay. And in the Last Mile, we may look at other opportunities before the end of the year. I said 2019 is not going to be a year for us of a big wave, a big transaction. But on the Last Mile, we're doing BeavEx, we need to do more.

Okay, great. That’s all I had. Thanks very much.

Thank you, Cameron.

You're next question comes from Brad Delco with Stephens. Please go ahead. Your line is open.

Hey, Alain. Good morning.

Good morning, Brad.

Alain, good job on results, certainly, better than what we were all expecting, and I think we're all pretty terrified of the impact whether you may have on margins. But margins did well. And so, I guess, could you give us some color on what some of your expectations are for margins in each of your business segments going forward? I mean, how much opportunity do we have to continue to see the types of improvements that we saw here in the first quarter on a year-over-year basis?

Yes. Well, it's a very good question, Brad. So, I was with Gregory, the guy that leads our U.S. TL and we still have lots of opportunity in terms of cost, in terms of improvement, in terms of saving, Both TFI and even more TCA. So if market condition remained the same. And for sure, you're right, Q1, we're not really talking about whether that much -- excuse me, but Q1 really affected us in terms of the weather. But that being said, I mean, we still have lots of opportunity. If market stays about the same on the U.S. TL, okay, to bring our AUR down from, let's say, a 92, 93 global TCA, CFI into sub-90 over the next 12 to 18 months. Like I said to Greg, I mean, the guys have done a fantastic job at CFI. We're lagging a little bit at TCA, so this is why our focus is really TCA. We made some changes over there. There's more changes to come. And the focus is really to keep bringing the cost down, because like we always say, the Tiger is the last one to survive in the jungle. On the Canadian side, our Canadian truckload guys are doing a fantastic job. Our specialty truckload, Steve Brookshaw and his team, they have lots of work to do there, because we made so many acquisitions, six or seven of them in Ontario, a little bit in Quebec, that -- and some in U.S., two in the U.S. So the guys have probably another six months to 12 months to bring those acquisition into the level of what we do at TFI in terms of profitability. So if you look at the OR in Q1, now take into consideration, that specialty truckload in Canada in Q1,…

So -- yes. It sounds like you gain -- you can see improvements.

Brad, look…

Across the board.

Yes.

And then maybe as a follow-up. On the LTL side, just curious as it relates to April, has there been any difference in activity, business activity, freight volumes in your LTL business versus truckload? We've just been hearing that April has snapped back a little bit because of industrial activity and curious if you're seeing a difference between those trends within your truckload versus your LTL business?

Well, no, not at all, Brad, it's consistent. The only thing we're not seeing is all the seasonal stuff. In Canada, it's really late. I mean, in Toronto, this morning it's about 40 degrees. So even though we stalling business is slow, because it's still not -- it's like the spring is still not here, okay?

Got you. So we're all just sort of hoping that once weather warms up, we'll see a little bit of spring lift to freight volumes?

Normally, it should, yes.

Yes. Okay. All right Alain. I’ll leave it there. Thanks for the time.

Okay. Thank you Brad.

Your next question comes from Gianluca Tucci with Echelon Wealth Partners. Please go ahead. Your line is open.

Hi Alain. Good morning.

Good morning.

I have a question as it pertains to e-commerce. So how much of your business in Q1 was derived from e-commerce? And what was the growth rate on that?

Yes. Our e-commerce business is about the $100 million a quarter today. Now, what happened year-over-year, if you look at our e-commerce in Canada, we made a decision late in 2018 to -- we have the largest e-tailer in North America, we were doing business with these guys in cities like Vancouver and Toronto with an employee model. They've asked us to go into that direction. We tried it, and it was a disaster. It was just a failure. So this is why, if you look at our revenue year-over-year, we're replacing that business with business coming from other customers. So with this largest e-tailer, now we're down to just servicing for them, basically, the small market like Victoria, like Regina or Saskatchewan other smaller market. We're not in the big market like Toronto, Montreal, Vancouver market for these guys. So our e-commerce for sure is growing. That's one of the reason our guys, either Last Mile or Next Day, on the P&C side, it's expensive to service e-commerce, because it's always one delivery per stop. I mean, you got one package, one card. No more than that.

Yes.

Whereas B2B, the average would be like maybe 1.8 on average, right? So it's a little bit more expensive to service, and we're addressing that now. This is why we're working on our technology, we're working on our sorting equipment. I think as I said on the call previously or previous calls, we're investing a lot of dollars in Calgary into a new sorting system. Once we're done with Calgary, we're going to Edmonton and then probably back to Toronto in two years, three years to upgrade our facility in Toronto. So e-commerce, there's no question about it. This is growing within TFI. And we're really focused at that. Our Last Mile guys, same story, I mean, the guys are doing a great job there. But if you want TFI, TFI is not going to work with zero profit. I mean, some guys are doing it to get big and good volume, okay? And hopefully, one day make money. I mean us, we're not in the same philosophy. We’ve got to make money today, not in 10 years. So that's our approach.

No. That's excellent color, thanks, Alain. And then just follow-up with asking on an update for the shortage of truck drivers in the U.S. Can you comment on that?

Yes. Well, truck drivers has always been an issue in the U.S. We're doing a good job, I mean, we're seeking more trucks today. Our turnover is a little bit improved. We're doing a lot of stuff to make sure that we reduce the turnover because the turnover is just a killer. So it's still an issue, and it will probably remain an issue. But that's the one side of the coin. The other side of the coin is that unemployment is really, really low in the U.S., so there's not that many guys looking for a job to be a truck driver. But that also creates an opportunity. If you're a smart, okay, and you sit down with the customer, you say, oh, I'm sorry, I mean, I can buy a truck, I can't find a driver and I've got demand. So I have to move rates to a level where I can maybe attract more guys, right. So this is what happened in 2018, is that, now, you saw rates moving up, okay, in the U.S. Now because of a little bit of weather issue, some consumer were sitting on the sideline, consumer confidence was down for a few months in the U.S., but it's a big time in February. So with the weather, the consumer confidence, we should see more activity. So the demand of drivers will stay. Now the ELD in Canada, they're still supposed to be on track for the end of the year. So that will put pressure on the Canadian side as well. But to me, pressure on driver -- it's tough to find a driver to me. We have to work this as an opportunity, not a handicap.

I appreciate the insight Alain. Thanks so much and keep up the good work. Thank you.

Thank you.

You're next question comes from Nav Malik with Industrial Alliance. Please go ahead. Your line is open.

Yes. Thank you. Good morning.

Good morning Nav.

Just want to ask on the logistics Last Mile segment. So you noted that the U.S. side was a bit weaker or facing headwind. Was that a competitive pressures? Or maybe if you could elaborate a little bit of what you're seeing in the U.S. on that segment?

Yes. Yes. So our U.S. operation, I mean, we had to make some changes there. We're not -- excuse me, we’re not growing in terms of revenue in U.S. It's been difficult for us, like you said, it's probably like the competition is more aggressive over there. So this is why, with Scott and his team, we're really focused in building a much or better or stronger sales force over there. Now BeavEx, for sure, it's going to help, okay? It's going to bring $100 million revenue. If you look at our gross margin revenue on the U.S. side, it's comparable to the Canadian one. So it's not an issue of cost, okay? It's a little bit of an issue of overhead, because if the revenue does not grow, it goes down a bit, then you have a problem with the overhead, but that will be collected with the BeavEx acquisition. So our focus is really with Scott and his team there to rebuild a team of sales, that's going to ring more opportunities for us in the future. And with that in mind, with the gross margin to be similar to the one in Canada, there's no reason why we're single-digit EBIT in U.S. and we're at double-digit EBIT in Canada. There's no reason for that.

Okay. So, you're really focused in that segment to grow revenue on that -- in the U.S. side?

Right. And BeavEx, for sure, it's really a shot in the arm, okay? But that being said, Scott, to build a real solid sales team there in the U.S. So, we're weak -- we're weak on sales.

Yes. And that just kind of on the BeavEx acquisition again, I know you already touched on it. But in terms of -- like about $100 million of revenue that you are adding, and I guess -- I mean, it's coming out of bankruptcy, of course, but I mean I guess you could see margins in line with your other businesses in that segment? Or in that sense, like you could look at maybe being around $10-plus million in terms of operating income? Or what are your as to where you could drive that from a profitability standpoint?

Well, that's a very good question. Now, first of all, what I have to tell you is this we got to pick and choose customers, right? So, we're not that stupid. So, we picked the ones that make sense. So, all the dogs, we said, hey, call somebody else. So, this is why, like I said earlier, now we can always be sure of 100% until we get it, okay, but we believe that the gross margin will be like in the 25% neighborhood. And that means that, for sure, the contribution to the bottom-line is going to be probably $10-plus million. It's just normal because we are not adding a lot of overhead. So, if you take 25% gross margin and you're not adding a lot of overhead. If you're just doing $10 million, bottom-line is because you're not that good. Maybe you could do $10 million to $15 million .

Yes. Okay, so lots of upside in terms of profitability contribution from that transaction.

Yes.

Okay. And then lastly for me just on the acquisition side. I'm wondering, if you could maybe talk about kind of vendor expectations in this environment like where our vendors relative to you guys? Are you seeing willingness to do transactions? Or is it more that coming off of a strong year that may be vendors have a bit lofty expectations for their businesses? Maybe if you could comment on that side of the M&A strategy?

Well, like I said earlier, the way we do M&A as is first quality is patience. So number one is, we are patient, we are not in a rush. We don't have to do deals. We do deals when it make sense. So, all the deals that we've done, okay, is based on a reasonable pricing. So for instance, somebody called us and asked us for, like eight times EBITDA, because we were PE, we bought it for eight, we want to sell for eight at least. Well, so keep it -- we're not buying things at eight, we don't even train at eight ourselves EBITDA. So, I mean, this is why for us, if it fits, if the price is right, okay, yes, we'll look at it. And like I said earlier, we have lots of -- I mean, we could -- we have one guy, Jason, in Chicago on new M&A team. I mean that guy could be busy like crazy, we could add more people to the team, but we have to digest what we do first of all and it's going to fit, it's got to fit with TFI. So, no, in terms of pricing, we buy at reasonable and fair price. We work for our shareholders, we don't work for the banks or for the -- we work for the shareholder.

Yes, good to head. Perfect. Thanks Alain.

Thank you.

Your next question comes from Benoit Poirier from DesJardins Capital Market. Please go ahead, your line is open.

Good morning Alain. Congratulations for the very strong start so far.

Thank you Benoit.

Yes. And just looking at the winter was obviously not only challenging for railroads, but I assume also for the trucking. Are there any tidbits you could discuss about how the costs were superior to typical Q1 either in terms of accident, insurance costs and -- would you be able to quantify some metrics to qualify the -- how harsh was the winter this year?

Well, that's a good question, Benoit. We have not done that, but one thing for sure is this winter has been really difficult. So, we have good winters, we have tough winters. So, this one was a difficult one, because of the cold, because of the ice, the ice is the killer, because of the storm, because of the number of trucks. Even the wind -- even as -- when I was talking to Greg the other day, we had 15 trucks out of service, just because of wind, too much wind. It's stupid, 15 trucks out of 3,000 is not much, but this is so unusual that we have in April in the U.S. trucks out of service because of wind. So, it's been difficult now. If you ask me, are you talking $5 million, $10 million, I mean, for sure, it's million of dollars, we don't really look at that because you know, we don't like excuses. So, as part of the game, so you have good winters, you have difficult winters, you have cycles in -- on the activity -- the economic activity, that's like 2018 was great and 2019 may be, it's going to be good, but may be not as good. So, we don't play this excuse game as our focus is bottom-line, bottom-line. Okay, don't give me excuse of the weather, do better, do better than last year. But we didn't quantify that Benoit.

Okay, that's still a very good color Alain. And just to come back on BeavEx, you mentioned about the 10% to 15% impact on the bottom-line. Were you referring to net margin or EBIT margin, Alain?

Yes, yes, yes. Because don't forget, this is $100 million. So, if you do the math of just 25% gross margin, which is not great, which is not fantastic, but which is not bad, because don't forget, we got to choose the customer. So, a guy with 12% gross margin would say, you know what, call somebody else, we don't want you. So, we did that with some customers. No, no, forget about it, call somebody else. So, if you think 25% gross margin and you add minimal amount of overhead, you should be bottom-line at $10 million to $15 million guy unless you're very, very lazy.

Okay, that's very good. So, I assume that there tougher depreciation, amortization, so it's probably more kind of a net margin, I would assume.

Yes, because there's no depreciation, there's no good well, there's nothing, there's no intangible because we're buying the company for $7.2 million including working cap.

Yes. Okay, okay, that's perfect. And is there -- do you feel, Alain, there is an opportunity to recapture a portion of the other $100 million that was part of BeavEx? Or that business is kind of not profitable or not in the same locations that are interesting to TFI?

Well, yes, that's a good point. I mean we chose seven locations. There are some locations that were really small. The customer base was okay, but it's so small like $1 million and we said no. We don't want a terminal with $1 million in revenue. So, this is not going to be attainable for us. Maybe in the other customers, they'll try to find another kind of BeavEx kind of guy. Maybe they'll find one, maybe they won't find one. Then they will talk to us again. But we told them, listen, with these kind of rates, we're not there. Call somebody else.

Okay. And DSO, Alain, when you look at your DSO, you mentioned that it's improved about one day $50 million impact, are there are a lot of -- are there still a lot of opportunities to improve your DSO? Is there any -- how many days do you think you could improve longer term? Is there still a lot of room in terms of DSO opportunity?

Well, for sure, like I said earlier I mean we have two of our U.S. operations that need to improve the TCA and our Last Mile guys and we are taking action on that. CFI was not doing a great job when we bought the company a year ago. It was mick mack mess. Today, they are really on top of the situation. They're doing a fantastic job. So U.S, those two divisions need to improve. In Canada, we have a little bit, but not so much in Canada, so I think that is still doable that we could bring that down another day over the course of the next year. Lots of work and don't forget, we get also lot of pushback from customers that, oh, TFI, you are big, give me 90 days credit. No, I can't do that. You're paying the small guy seven day, you want me 90 days, why? Oh, because you are big. No, no, because I got to pay my guys every day, every week. I got to pay my fuel every way. It's not – I'm not a bank, I'm a trucker.

Okay. Okay. That's a good point, Alain. And just in terms of share buyback, you've been quite active, obviously, evaluation was interesting. It seems that you still have room to complete your share buyback, although there's much less opportunity, given your – you've been very active. So now if you look at the share count, it's below $85 million. So any thoughts on the remaining share buyback opportunity? And whether you could enlarge the NCIB and try to be even more proactive on this side?

Well, I think if the stock remains at that the level is that today like the $40 – maybe $42 something like that. I mean, we'll be back. I mean, we still are allowed to buy back about 2 million shares and in our plan we're buying back those 2 million shares. So we want to bring the share count down like maybe 83 until October and then in October, we'll see – like I said – excuse me, earlier, there's no big transaction for TFI in 2019. Nothing big. Just a small deals that we've done so far. So with the kind of cash that we're going to be generating and when you trade at double-digit free cash flow on the stock price, I mean, come on, hey, so I like my guys are saying, buy more, buy more and that's what we're doing.

Okay. That's perfect. That's perfect. Okay. Thank you very much, Alain for the time.

Thank you, Benoit.

Your next question comes from David Ross with Stifel. Please go ahead. Your line is open.

Hey, good morning, Alain. This is Matt Milask on for Dave.

Good morning.

Congrats. Hey, good morning. Congrats on the quarter and great start to the year. Just quick sort of housekeeping item here. On the step-up in DNA and finance expenses in the quarters, resulting from the change in the lease accounting, we just wanted to sort of confirm that these expenses are expected to recur at similar levels going forward into the next year? Might there be a change in trajectory to think about?

A little bit, a little bit, okay? Because what we're looking at is on the real-estate side, I've talked about little bit on the truck side. So truck, we'll keep on buying more instead versus leasing, but slowly over the next three, four, five years. On the real estate side, for sure, the way this IFRS 16 works, I am not really happy with the way it works. It doesn't really make any sense. So for sure, there maybe little bit of change in terms of – we've been working hard with our guys to say, we can afford to have more space. We can, we can. So we've been doing a lot of that, the last year and a half to two years. And now the pressure is going to be even more into reducing our footprint in Canada, okay, on our LTL, on our P&C. So you should see that, okay, asset or depreciation of that asset going down. There also maybe some sites where we have the opportunity to buy them back, okay? And because of the way the accounting is done on IFRS, that doesn't reflect the reality. There maybe some sites in Canada that we could take the opportunity to buy them back at fair reasonable price. But that being said, you should see the trend going down, okay, in terms of debt depreciation or finance charge because of IFRS 16 over the next two, three, four years. Because we want to reduce debt as much as we can.

Great. Thanks a lot.

You’re welcome.

You're next question comes from Kevin Chiang with CIBC. Please go ahead. Your line is open.

Hi. Good morning. Thanks for taking my question. Just two for me. One, LTL margins in Q1 were extremely strong. And I noted that, you talked about some opportunities you had with decreasing your subcontracting cost. Just wondering, if you could elaborate what happened there? And does this create a new runway for margins, kind of, as I think of the seasonality of LTL margins from Q1 into the rest of the year? It's about 300 to 400 basis points higher versus last year backing out asset sales and stuff like that?

Yeah. Yeah. Well, the big story in the LTL, besides the operation that we have last year. So what we've done is, as an example. We had over land TST Overland in Kingsway in Q1 of 2018. In Q1 of 2019, we have only Overland. So we have combined those two, okay, and we got rid of lot of costs, okay? By combining those two, we also got rid of some business that don't fit, our low margin business. And the net effect of the combination of Kingsway and Overland in Q1, okay, its 3 mill bottom line. That's just an example. Another example of the improvement that came in Q1 is the fact that we bought Normandin last year, we bought it in April. So in 2018 Q1, Normandin was not there. So now we've added the Normandin business and Normandin is highly profitable, very well-managed company, okay? So if you look at our top line, you say, well, Alain, I mean, you did that, but your top line is only up just a few million dollars Yes, true, because we added Normandin. But at the same time, because of the combination of Kingsway and Overland, we got rid of a lot of freight that did not fit the network because TFI is all about bottom line. It's not about top line. And how could we get more bottom line while we have to shut this customer, because we are losing money with this guy. Now how come? No. We don't want that guy. So the same story happened with NFF. We bought NFF about 18 months ago, and we keep on cleaning NFF. So since we bought NFF, we got rid of $20 million of business. But instead of losing eight, or six or eight on 80, wow, we make money now, we make double-digit EBIT. So that's, but we reduce our footprint, we reduce the rent, we reduce a lot of stuff. So going back to your earlier – to your question is, yes. We will keep improving our LTL. Now 300 basis point, can we do another 300 basis point in Q2, Q3, Q4, Q5? We'll have to see. But for sure, can we improve Q2 2019 versus 2018? Absolutely, I'm convinced, I mean, the guys are focused. The other thing also that change in our LTL is we have a lot of good guys that have been with the company for a long time that retired. Three of our top executives in LTL retired, Vitran, Clarke and TST.

Right. No, that's super helpful. And maybe just lastly for me, I appreciate you being conservative on your EPS guidance. But you kind of laid out a lot of self-help levers where margins can go within your U.S. operations. You've made four acquisitions here, which, you brought math, could be another $0.15 to $0.20 of EPS. I think your $3.80 to $3.90 EPS did include – didn't include any of these acquisitions. Just wondering, why you wouldn't be able to lift that guy just on the acquisitions alone? Are you – is there anything that you're seeing there that's causing you any worry whether it's noise around whether, issues around wage inflation? Just wondering, if there's anything that maybe gives you a little bit more pause today than what we had our last – when you had your last earnings call a few months ago.

This is David Saperstein, I think Mr. Bedard may have cut-off. Kevin, can you hear me?

Yeah. I can hear you Dave.

Okay. Hi, Kevin. No, no, it's just with -- with the new accounting standards, IFRS 16, we wanted to put these numbers out there. Let them speak for themselves, let them be digested. And yes, as Mr. Bedard said earlier in the call, we can evaluate as the year progresses.

Okay. That’s super helpful. Thank you very much. Congrats for the good quarter.

Thank you.

The next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead. Your line is open.

Hey, guys this is James on for Walter here. I have a question on the M&A strategy. I know you guys mentioned that there won't be any outages in 2019. But if you look out to 2020, would your focus be more in the U.S. or Canadian market? And with regard to strategy, are you guys looking to buy a strong businesses and then grow the market technically? Or more so buy companies that with poor operations and try to turn them around?

Yeah. Hi, there. Good question. Listen, our focus is always on making acquisitions that make us money, right? Because we're always thinking about capital allocation just from the perspective of, hey, where's the business return, and we're thinking about buybacks, we're thinking about investing in our existing operations, and we're thinking about M&A. So to your question, in Canada, we are the natural buyer for businesses across the scope of our activities and so we'll look at opportunities throughout our four segments. And when they make sense, when they fit, when we can get a good financial return before any improvements then we'll do those deals. And then there's always improvement, right? There's always improvements around procurement costs by a lot cheaper than smaller independence businesses do as well as on the facility side. U.S., we've been active on both sides of the border, so far this year that will continue. In the U.S., we're a little bit more focused from a sector perspective, and you can see that and what we've done so far this year. We've been saying for a while now that in the U.S. we're really interested in specialized truckload. So we did two deals in the U.S., specialized truckload, we need to digest those now. We've also been saying for a while that we've been interested in parcel. We have now got BeavEx that's going to close shortly, and we'll continue to look in that space as well.

Thank you. And on the driver shortage, there was a question on driver shortage in the American market. Are you guys seeing anything similar in Canada? And do you see any impact from the deal being implemented? And do you guys think that you will be able to transition us into any opportunities for the business?

Yes. It's a great question. So in Canada, the driver situation is more stable. It's more stable for a number of reasons. We were able to provide leadership in the market, we’re able to -- the drivers are generally are home more, we're able to provide steady wage increases year-after-year. It's a different dynamic and so our turnover is not as much a problem in Canada as it is in the U.S. These are interesting and this is one where this -- you're right, ELDs are coming into play in Canada. And there's no question that ELDs in the U.S. had a very, very important impact on safety, which we’re all very grateful for, but also had an impact on capacity because it levels the playing field between all players, those that use formerly as paper logs and those that have been using ELDs all along. And we expect a similar effect in Canada. And certainly among the public listed companies out there, we are the most exposed to ELDs and the impacts of that in Canada.

Good. Thank you. And that’s it from me.

Your next question comes from Alanna Yontef with BMO Capital Markets. Please go ahead. Your line is open.

Thank you.

So, David, I'm back. I mean, you know what the technology is -- I don't know, if you guys can hear me now?

Absolutely.

So technology, I mean, I lost the line. So, thank you, David, so if I may, I'll take over.

Okay, this is Alanna from BMO Capital Markets for Fadi Chamoun. I just had a question regarding the acquisitions that have been made so far this quarter. I believe, someone mentioned earlier, but I just wanted to confirm that the guidance, is that – that does not include the acquisitions, correct?

Well, that's only what we do. Part of our plans is that we do early -- late in last year, we never include any acquisition in our plans. I said on the call that the guidance on EPS remains the same, because we’re very conservative. I didn't say that that's not include the M&A. So what we're saying is that the guidance stays the same even with the acquisition that we just made. So you say, you just added $20 million in EBITDA, okay, U.S. So it should change, okay? But that's being very conservative. We say for now, let's see what happens and then we’ll revise, okay, guidance if necessary in Q2.

Okay. Okay, that's great. And just more on the acquisition. I'm just trying to understand the impact of the acquisitions on operating income. I'm just wondering if you could please comment on that.

When you say acquisition, are you talking all the three acquisitions we've done so far? Is that what you say?

Yeah. But I guess, is this the same story as EPS if you expect? Or how do you expect these acquisitions so far in Q1 to affect operating income?

Well, if you look at the three acquisitions we made, we've had about $3 million in Canadian EBITDA. So EPS in terms of bottom line, this will add probably like maybe $0.10 and this is, why I said, let's digest those acquisitions, let's be conservative. We stay at $3.80 to $3.90 and then we'll review that probably in Q2. What we're seeing today is, we'll revise the CapEx down from about $20 million, $25 million, and we're saying EPS stays the same for now. Like this BeavEx acquisition, for sure, it's going to improve EPS. We're saying guidance, give us a quarter and then we'll come back.

Okay. Okay, that's fair. And just one last question, I believe you mentioned earlier that the contract renewals for truckload pricing was up 3% to 6%, did I get that right?

Yeah. Yeah, yeah. Absolutely, we're still able to pass on -- excuse me, but we're still able to pass on pricing improvement in the U.S. today. Yes, absolutely.

Okay. And that 3% to 6%, that was for both the U.S. and Canadian truckload segments? Or was it just the U.S.?

No, it's just the -- I was just talking about the U.S.

Okay. Okay, great. And that’s it. Thank you so much for your time.

Okay. Thank you.

Your next question comes from Jason Seidl with Cowen & Company. Please go ahead. Your line is open.

Hey, this is Adam on again. Thanks for taking the time for a quick follow-up here. Appreciate you guys squeezing me in. I just wanted to follow-up a little bit on -- just recent trends in April. I know it's been a few weeks, but is there anything you guys are seeing in terms of your TL market that would give you guys a little bit of pause, is that kind of part of the decision not to raise guidance? Just looking to see if there's anything that’s been going on last few weeks in terms of contract TL that may be giving you guys a little bit of hesitation with the guidance?

No. No, no, not at all. It's just a matter that we’re very conservative. And we just don't want to play the very optimistic game of, saying, oh, everything is going to be nice. What -- the only thing I could say is that what we're seeing is that the seasonal is late, okay? So normally, seasonal in April should be ongoing. We're not seeing that in Canada yet and this is, in our mind, is whether related. We know that the consumer confident in February is up big time in the U.S., but seasonal, we're just starting seasonal now in the South. The North, we're still not doing it. So this is why, I was being very conservative, and say, listen guys, let's do the BeavEx deal, which is going to close by the end of April. We done those two deals within all just April 1st. So, give us a quarter, okay, and then we'll probably be in the position to revise the guidance. And the only thing we are revising now is CapEx is down, okay? And we’re still there to buy back the stock; that is clear. And we’re not going to do anything major in terms of M&A. And let's see what happens with Q2.

Got it. Thank you so much for the color. Appreciate it and congrats again on the quarter.

Thank you, Adam.

And there are no further questions in queue. At this time, I would turn the callback over to Alain Bedard for any closing remarks.

Okay. Well, thank you, operator, and thank you, once again, everyone for being part of today's call. You can rest assure that throughout 2019 and beyond, we, at TFI, will continue to seek opportunities to create value, unlock it for investors and whenever it possible, return excess capital to our shareholders. So thank you again. I look forward to speaking with you soon, and have a good day. Thank you all.

And ladies and gentlemen, this concludes today's conference call. You may now disconnect.